Updated about 4 years ago on . Most recent reply
About the protection to tenants Is NO EVICTION healthy?
Well, the market for rentals and sales in San Diego has being hectic for the last few months, the lack of inventory is creating an increase in prices.
Now in regards the rental market, with the obligation for the landlords to keep tenants even if they are not paying (COVID) this maintain the vacancy rate very low that helps the landlords to ask for a higher rate, and with a higher rent the properties will increase in value.
With this situation tenants are getting backfired
Is this a smart decision to keep from the government? Is this also happening with the mortgage forbearance?
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I think you are missing the most critical cost upper. The national and especially local COVID eviction moratorium has identified a new risk item. A means to not be able to collect rent for an extended period of time. A means in San Diego that you cannot get a tenant out for lease violations including thrashing a unit. A prohibition from moving into the property that you own. A prohibition from removing a tenant to rehab a property. San Diego County Covid eviction moratorium allows eviction only on the basis of health and safety. This implies a tenant can destroy the unit, not pay you rent, bring in as many guests as they desire, have as many pets as they desire and you cannot evict them (assuming it does not cross the line of health and safety). This is a risk item that did not exist pre-Covid.
Increased risks must be compensated for in the collected revenue. My view is units that are rent controlled (all multi units) will have multiple years (probably at least 5 years) of max allowed rent increases to compensate for the increased risk and higher property values. I think non-rent controlled units will be looking at rent increases above 10% this year and likely for a couple of years.
The combination of increased risk and increased property value have and will cause rents to rise significantly. I have provided 8 max allowed rent increase notifications (State rent controlled units) this year and 8 below max rent increases (for preferred tenants), but still substantial increases (also 1 not rent controlled increase). We have some units that have not yet received their rent increase notices this year. Note some of my rent controlled increases are still on the order of $250/month increase. Prior to this year, I do not believe we ever raised the rent more than $150/month (and that was on one of our non-preferred tenants) except to encourage the tenant to provide notice. Only one tenant who got a rent increase has given notice (move out is at the end of this month) and the new tenant will be paying substantially higher rent than the tenant that gave notice would have paid after the rent increase (they were going to get max allowed rent increase for a few years so it is best that they moved out).
The damage is done. Rents are going to go up significantly. The tenants will whine, but it really is business 101. Increased risks results in the need for increased revenue. Cost of business goes up (i.e. cost of the properties) results in the costs being passed to the customers. There is no other way to expect LL to be able to provide rentals. Currently rent to cost ratios in many locations in San Diego county are below 0.5%. This is if you have been collecting all the rent due. This implies large negative cash flow at purchase. The rents must go up just to get to even cash flow. Even cash flow does not account for the risks. If you are not cash flowing at least a few hundred a month per unit, you may have not properly allocated for the associated risks.
It is likely a bad time to be a renter on fixed income. They will need to downsize, possibly increase occupancy, possibly downgrade the quality and location of their home. It is the reality of the consequences of the Covid eviction moratorium.
Good luck